Gay students and teachers may be rejected from religious schools across Australia if a government backed review into the free practice of religion gets its way, according to local reports.

The religious freedom review panel, announced by then prime minister Malcolm Turnbull in November 2017, kept its final considerations a secret despite giving its recommendations to government in May this year. The expert review panel, chaired by former attorney general Philip Ruddock, took submissions from the public days after Australia's parliament legalized same sex marriage.

A new report by the Sydney Morning Herald and other Fairfax media reportsthe panel recommends that religious schools be given a guaranteed right under federal law to reject pupils and teachers because of their sexual orientation.

"There is a wide variety of religious schools in Australia and ... to some school communities, cultivating an environment and ethos which conforms to their religious beliefs is of paramount importance," the review reportedly states.

"To the extent that this can be done in the context of appropriate safeguards for the rights and mental health of the child, the panel accepts their right to select, or preference, students who uphold the religious convictions of that school community."

Religious schools are already allowed to decline the application of teachers who are gay in some states, according to ABC Australia. However, if the recommendation is taken up by the government of PM Scott Morrison that power could be extended to students and states where the practice of rejecting teachers based on sexual orientation is specifically protected against.

"Our government will consider the details and release our response after it has gone through a proper cabinet process," Prime Minister Scott Morrison said on Wednesday. "We will protect religious freedom, and get the balance right."

Amnesty International Australia slammed the proposals, saying it is an attempt to "water down anti-discrimination laws".

"The sanctity of religion should not be used to justify discrimination or marginalization," the human rights group said in a statement.

"Organisations which receive public funding to provide education or services should not be exempt from anti-discrimination laws - they should provide services to all Australians on an equal basis."

A leaked paragraph on faith-based legislation stated businesses should not be allowed to decline services on religious grounds.

Australia' religious review consultation received more than 16,000 submissions from the public between December 17 and February 14, 2018.